Whether you are just a beginner in investments or you have been in the game for a long time, there are certain fundamental rules and principles that you need to pay attention to if you want to invest successfully. You need the right toolkit to help you dissect the concepts of investing. A lot of people ignore these fundamentals of investing and are later made to go back to the drawing board to find out what they may have missed out on from the start.
Highly successful investors talk about how these fundamentals of investing have taken them to the place where they currently are in the investment spectrum. Before you go out and start buying assets for investment, you must learn about some fundamentals of investment. They form a very comprehensive guide into the investment world.
In this article
What are the Fundamentals of Investing?
There are 8 fundamentals of investing that will help you today as you start investing. Always think about these principles and rules if you want to invest successfully.
1. Know your investments
This is one of the most important fundamentals of investing you should know about. Do not invest in something you don’t know. Whether it is stocks or real estate, it is wise to learn about how these types of investments work.
If you are a beginner in any type of investment, go out and start looking for resources that will help you gain understanding on your investment of choice. You can take a course or even find professional investors who will take you through all you need to know about how to start investing.
Some online resources to gain fundamental knowledge on investments include the Hisa App that teaches you about stocks, how to invest in the stock market and gives you a platform to invest in global stocks. You will also get to learn about your preferred index funds and how you can manage a successful investment.
2. Are you a long term or short term investor
This is also another fundamental principle that you may need to consider. With investments, we have both long term and short term investments. Examples of long term investments include stocks, bonds, mutual funds, real estate or ETFs.
Short term investments include money market funds, high yield savings accounts, T-bills or government bonds. Long term investments allow you to build wealth with less risk in the long term. Short term investments are more riskier and have a lot of market fluctuations.
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Stocks will not only yield you very high returns, but also help you achieve your financial goals.
Remember, as you start to invest in any long term investment, for example stocks, you have to stay committed and be patient as you wait for your investments to yield returns on its maturity date.
3. Have a diversified portfolio
Any person who has been successful with his investments will tell you how important it is for you to diversify your risks. Investing is a risky game. You cannot put all your eggs in one basket here. There are investments which are found on the high risk end or the low risk end of the investment spectrum.
Let’s look at stocks for example. It is a very risky investment. A lot of potential investors shy away from stocks because money is not guaranteed. Market fluctuations as well as cash flow should be key areas to look at as you invest in stocks.
Diversifying your portfolio allows you to spread risk and cushions you from suffering any huge financial losses. If you are looking to diversify your portfolio, you want to mix up assets with different risk levels.
For example, a well diversified portfolio will include stocks, money market funds and bonds. Always make it a point to invest in different sectors so that your investments may not be impacted in the same way in case of loss.
4. Look at the company valuations
This is a fundamental principle that you need not overlook when you start investing.
Before you start investing, ask yourself how much the company is worth. The first thing you must do when you start investing in the stock market is to look at how the company you plan to invest in has been performing in the past. This will allow you to make informed decisions on whether to buy the shares of a particular company or not.
You can check out the daily earnings and the most active markets in the premarket trading to find out your best companies to trade in. When you use Hisa App, you can get all the daily updates before you can trade in the global stocks.
5. Calculate the real return on investment
Any good investments should give you your required returns. Return is what you get from an investment. When you invest, you get what is called nominal return or real return. Investors are more concerned with real return.
Real return is what you have earned from an investment after all deductions have been made. Knowing real return is much preferred over nominal return because it factors in inflation, transaction charges and taxes.
These three items have a direct impact on your investments and should not be ignored. This rule is very fundamental to your success as an investor.
6. Look at the size of position
This fundamental principle has been a driving force for investors to make the right investment decision. Before you put your money into an investment, you need to calculate and know the position of the company when it comes to risk and overall return.
What is the size of position of the company in relation to its potential risks and overall return? If the risks and return rate fall too far apart, the investment may not be the right one for you, especially if it has high risk and low returns.
7. Do not try to time the market
This is a fundamental principle in investing. Make it a habit to consistently invest your money. For example, the stock market has up and down movements and by trying to time the market you might miss many good investment opportunities.
When you have an investment, don’t jump right off the bat and start investing. Market fluctuations occur and the price of shares shifts. You need to learn to look out for any other opportunities that are likely to occur in a month or a year(s) and then invest when the possibilities for a high yield return are evident.
8. Avoid following trends
This is a fundamental principle that any beginner investor can apply during their journey. When you want to invest, don’t just invest in a particular investment because that’s what every other person is doing.
Learn to analyse the market and find out how best to approach the different market situations effectively. Don’t bow down to trends. Give yourself a chance to learn about the invest on your own and make good decisions.
Investing is a very fulfilling process. If you have any financial goals, one of the ways to meet them is through investing. You not only grow your income, but also build wealth from the money you earn from an investment.
It doesn’t matter if you are investing in the long term or short term; these fundamentals of investing should be taken into consideration, both at beginner and advanced levels of investing.
These fundamentals of investing are here to pave a clear path for you as you start your investment journey. You will notice that this process will not only be smoother, but also easier to understand.
Today investment has been made simpler with apps that allow you to know about your investments, check company valuations, diversify your portfolio, know your real return and choose long term investments.
You can use reliable platforms like Hisa App if you want to make good headway in your investments.